So this might not seem like an environmental topic but the arguments in the U.S. Congress over funding federal funding of NPR can provide some interesting insights into a capitalist system; which is very interesting for environmentalists (or should be). This stems from the nature of NPR as, arguably, a public and non-rival good (acknowledgements to NPR’s Planet Money show on Friday for getting me thinking about this and for most of the information in the first two paragraphs).
In order to justify federal funding for NPR from an economic perspective (and, importantly, to justify federal involvement in the provision of any good in a capitalist system) it must be considered a public and non-rival good. In other words, it is a good which I cannot be excluded from using if I don’t pay (once you broadcast NPR, anyone with a radio can listen, whether they donate or not) and which my use doesn’t infringe your ability to use it (listening to NPR on my radio doesn’t use it all up and prevent you from listening on your radio). If these two requirements are met then it is unreasonable, generally, to expect that private players in a market will provide the service because there is no way for them to get a return on their investment. There is quite a bit of work showing that in some situations this is not true, but for simplicity’s sake let’s take it as a given. Therefore, if it is desirable that the good be provided, the government must step in and provide it. Thus, the justification for government funding of NPR.
Now, the obvious question is, if radio is a public good that the government must provide, why are there so many other radio stations that seem to be doing just fine? The answer, as I learned the other day, is that they have turned the model around. Instead of viewing the good provided as the content on the radio and the listener the customer, they view the listener as the good provided and the customer is the advertiser. They’re effectively selling the listener’s ears to the advertisers. This seems obvious but until it was explained that way I’d never considered it in this framework.
The implication, from an economic standpoint, is interesting. People complain about the quality of television (which follows the same model) and radio today but it seems to me that this decline in quality is an inevitable result of the current advertising financed business model. Producers want to sell the most ‘ears’ to advertisers so they want to attract the most ‘ears’ to their shows. This incentivizes a dumbing down of television and radio. Complex programs inevitably appeal to a smaller market share than simple entertainment. So if the goal is maximizing viewer ship this decline seems inevitable.
The really interesting implication comes when you consider the impact that the Internet is having on the provision of goods. It is effectively turning what used to be non-public, rival goods into public, non-rival goods. The most obvious example is newspapers. It used to be that you could easily prevent me from reading the paper if I didn’t buy it and my buying the paper meant that there were x-1 papers left for everyone else. Now, with the acceptance of the internet by major news corporations it is much more difficult to exclude people (you can demand an online subscription but people have come to expect the internet to be free and, as the NYT recently showed, they don’t like being charged for what should be free) but my reading of an online article doesn’t take away from anyone else’s ability to read it.
So how do newspapers cope? They’re still working this out but are we going to see the same race to the lowest common denominator that happened in television and radio? The larger implication, and the one I’m most interested in, is that the rise of the Internet and the decline of rivalry in goods may justify a larger government presence in the economy. If people expect the same quality of service from areas like newspapers, radio and television it may be that there will have to be a larger government subsidy to these organizations. That certainly won’t be popular in the current political climate.
Another thought that came out of the NPR debate that is tangentially related to the above. One of the problems with non-rival goods is that you can’t, by definition, exclude free riders. I can listen to NPR whether I contribute money to their fund drives or not. So my question is, how many of the people up in arms about NPR losing funding are free riders that don’t want to have to pay for NPR? By all accounts the loss of federal funding could be easily made up from other donors and contributions. NPR isn’t going anywhere. But how much of the resistance is coming from people who don’t want to be put in the position of having to pay for what they listen to?
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